GE targets Y1 trln Japan assets, eyes HK

TOKYO (Reuters) - The Japan unit of GE Real Estate, a real estate arm of General Electric Co. (GE.N), said on Monday it aims to boost its property investment in Japan to 1 trillion yen ($8.55 billion) from the current 600 billion yen by next year. GE Real Estate also said it may start investing in Hong Kong for the first time as early as May or June this year, although details have not been decided.

"We want to allocate our money according to the size of the economy, and Japan's weighting should be higher," Tomoyuki Yoshida, president of GE Real Estate Japan, told Reuters in an interview.

Of GE's 6.4 trillion yen worth of property investment in the global market, Japan represents about 10 percent, Yoshida said. By the end of this year, GE plans to invest 350 billion yen in Japan, up from 300 billion yen spent in 2006.

"At this pace, it is very likely that we will hit one trillion yen by next year," Yoshida said.

As it expands the size of its assets in Japan, GE Real Estate has started to diversify its portfolio and has tied up a Japanese real estate investment trust (REIT) in case market liquidity dries up.

Earlier this month, GE Real Estate announced it had tied up with LCP Investment Corp. 8980.T, which has a mixed portfolio of office, residential and commercial properties, and acquired a 35 percent stake in the REIT.

Under the agreement, LCP will have priority to negotiate and buy properties that GE Real Estate intends to sell. LCP has also bought seven residential and office properties. GE Real Estate's portfolio has also become diversified, adding commercial facilities and warehouses which have long-term releases to secure steady cash flow. It is also looking into hotels, although leisure hotels do not look attractive, Yoshida said.

EYEING HONG KONG

Yoshida said his firm is considering venturing into the Hong Kong property market, although the market has become expensive and the gap between funding costs and returns on property investment is slim.

"I am drawing up some game plans," he said. "We are studying the feasibility and if proves to be do-able we will start investing as early as May or June."

GE has invested in about 2 billion yen in mainland China and about 8 billion yen in India, both through joint ventures.

Other possible investment areas in the region include Taiwan, Thailand and the Philippines, Yoshida said.

Yoshida said Japan remains attractive due to low interest rates and relatively high returns. The market has turned more competitive when it comes to obtaining quality assets but Yoshida said GE Real Estate has an advantage as a long-term investor. "Even if a property yields a 3 percent return, that can be boosted to 5 percent in five years" as tenants may change and rents can be raised, he said.

While the office market is expected to remain firm, Yoshida said the outlook for the residential market is murky.

"Personal consumption is weak and land prices are up. Condominium developers have to sell at higher prices and there is a possibility that that market may be the first to become volatile," he said.